Chapter 1 Flashcards
efficiency
squeezing maximum output out of avaliable resources
how are efficiency and the production possibilities curve connected?
- every point on production possibility curve is efficent
Economic growth
increase in output (real GDP)
What are the three main questions?
What, how and for whom?
What does the WHAT question answer?
what to produce with our limited resources;
What does the HOW questions answer?
how to produce the goods and services we select; producers eek the lowest-cost method of producing a good possible to maximize profit, this answers
What does the FOR WHOM question answer?
goods and services are produced-that is, who should get them; market distributes to the higher bidder therefore answering
Market Mechanism?
Use of market prices and sales to signal desired outputs
Communism?
government owns all means of production
Private Enterprise?
price signals and responses of the marketplace were likely to do a better job of allocating resources than any government could
Socialism
govt should plan an active role but not all-inclusive role in managing the economy
mixed economies?
combination of market signals and government directives to direct economic outcoes
market failure
an imperfection in the market mechanism that prevents optimal outcomes
- if this happens we end up with wrong (not optimal) mix of output,
government failure
occurs when govt intervention fails to improve market outcomes or makes it worse
Normative Analysis
incorporates subjective judgejments about what should be done
